Gig economy growing, but wages for self-employed falling

Average earnings for the UK’s self-employed workers have fallen to their lowest level for 20 years, according to the Resolution Foundation’s latest 'Earnings Outlook'.

Ruth Holmes

18 October 2016

The ongoing rise in self-employment, which has seen the number of people register as self-employed grow by 45 per cent since 2001-02, is not being met by a rise in earnings. This is leading to fears voiced by two independent think tanks that current government policies are not fit for purpose and could leave the self-employed unprotected in employment law and reliant on in-work benefits to get by.

The changing nature of self-employment?

According to a Resolution Foundation study released this week, people who are self-employed typically earn around £240 a week; £60 a week less than their self-employed counterparts did in 2001-02.The report from the non-partisan think tank shows typical weekly earnings for self-employed workers grew steadily in the late-1990s and early-2000s. Pay then stagnated in the run-up to the 2008 crash and fell by a quarter in its wake, to recover to current levels.Explaining the downward pressure on earnings, the Resolution Foundation's study finds that the profile of self-employment is different to that of 15 years ago. It suggests the decrease in earnings is in part due to the type of work self-employed workers are likely to do.Fewer self-employed people now employ staff compared to 2001-02. The proportion of people working over 40 hours a week has also increased, suggesting little scope to increase earnings by working additional hours.“Almost five million workers across Britain are now self-employed," commented Adam Corlett, economic analyst at the Resolution Foundation. "But while the self-employed workforce is getting bigger, typical earnings are actually lower than they were 20 years ago.“Prior to the financial crisis, this stagnation was as much about the changing nature of self-employed work, rather than individual rewards. But since the crisis the returns to self-employment have fallen sharply, even when measured on a like-for-like basis."

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Self-employment and the National Living Wage

Research carried out by the independent think tank Social Market Foundation and released on the same day as the Resolution Foundation study also raised concerns about the continuing rise in numbers of the low-paid self-employed. It examines the impact of the government's low-pay policies aimed at employees, such as the National Living Wage (NLW), on the self-employed.According to the Social Market Foundation's analysis, around 45 per cent of self-employed workers (1.7 million) are currently paid below the NLW floor. "We are sleepwalking into a situation where increasingly self-employment means a life of poverty and hardship with few protections," said Mubin Haq, director of policy and grants at Trust for London, which supports the Social Market Foundation report. "This report shows the self-employed were twice as likely to be in low pay as employees even before the National Living Wage came in this year."

Fair work for all?

Together both reports are likely to add insights to the government's upcoming review of employment practices and legislation, which aims to ensure fair work for all.“For many people, self-employment brings a freedom that no employer can provide,” comments Adam Corlett. “But the growth of low pay and short hours, along with a summer of protest about conditions, means that its no surprise some workers in the ‘gig economy’ feel that self-employment is just a positive spin on precarious work.“With so many self-employed workers earning so little, it is right that the government investigate how public policy should catch up to meet the needs of these workers.”

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